How are the recent 2025 acquisitions performing against internal expectations, and what are the thoughts on driving accretive margins into 2027?

Mike McKenney stated that the larger Clyde acquisition is performing very well, exceeding expectations. The Profeel acquisition is off to a good start despite a temporary profit deferral issue. A smaller fiber processing acquisition is currently challenged due to lower demand in its specific area. “I would say, Ross, the larger transaction we did Clyde, they are really performing well. They are really doing well. Very, very happy with the results today.”

Despite expectations for improvement in the back half of the year, clients still seem hesitant to commit. What is the outlook for capital equipment for the next 6 months?

Jeff Powell acknowledged the prolonged softness but reiterated that capital equipment activity is picking up, with Q2 capital equipment revenue being the second best ever. He believes projects are getting closer to release as customers can no longer defer necessary investments. “But we definitely are starting to book some capital, and we think some of these projects are getting closer to being released.”

Does the growth in aftermarket parts sales indicate that machines are being run extremely hard and eventually something has to give, leading to capital investment?

Jeff Powell confirmed that strong aftermarket business, even with customers not operating at record rates, suggests the average age of the installed equipment base is high and requires more maintenance. This is a strong indicator of the need for future capital investment. “And what that tells us is the average age of the equipment as long -- it's aged, it's old. It's taking a lot more to keep it up and running.”

KAI

Kadant (KAI) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Industrials· Aug 5, 2026

Source: earnings call transcript

Executive summary

Kadant Q2 FY26 — Record Revenue and Adjusted EBITDA Driven by Acquisitions and Aftermarket Strength

Kadant delivered strong second-quarter results, achieving record revenue and adjusted EBITDA, primarily driven by recent acquisitions and robust aftermarket demand. Despite ongoing softness in global capital equipment markets and geopolitical uncertainties causing project delays, the company's diversified business model and operational discipline supported profitability. Management anticipates a strengthening in capital spending trends in the second half of the year.

Highlights

Bookings increased 16% to $312 million in Q2 FY26.
Revenue increased 23% to a record $313 million, with organic revenue up 8% in Q2 FY26.
Adjusted EBITDA was a record $68 million, up 30% from the prior year period.
Adjusted EPS was a record $3.42, up 26% compared to Q2 FY25, exceeding guidance by $0.44.
Operating cash flow increased 32% to $54 million in Q2 FY26.

Concerns

Gross margin decreased 210 basis points to 43.8% in Q2 FY26 due to higher capital mix and product mix.
Customer approval cycles and project releases are delayed due to geopolitical uncertainty.
Softness in global capital equipment markets continues, though expected to strengthen in H2 FY26.
Deferred profit recognition from the Kadant Profeel acquisition negatively impacted gross margin, expected to take the remainder of FY26 to resolve.

Guidance & targets

Category	Target	Timeline	Confidence
Full-year FY26 Revenue	$1.19 billion to $1.21 billion high materiality	FY26	High
Full-year FY26 Adjusted EPS	$12.43 to $12.68 high materiality	FY26	High
Q3 FY26 Revenue	$297 million to $307 million medium materiality	Q3 FY26	High
Q3 FY26 Adjusted EPS	$2.90 to $3.00 medium materiality	Q3 FY26	High
Q3 FY26 Gross Margins	44% to 44.5% low materiality	Q3 FY26	Medium
Q3 FY26 SG&A as percentage of revenue	27.2% to 27.7% low materiality	Q3 FY26	Medium
Q3 FY26 Net Interest Expense	$19.5 million to $20 million low materiality	Q3 FY26	Medium
Q3 FY26 Tax Rate	27.8% to 28.3% low materiality	Q3 FY26	Medium
Q3 FY26 Depreciation Expense	$28 million to $28.5 million low materiality	Q3 FY26	Medium
Q3 FY26 Intangible Amortization Expense	approximately $34 million low materiality	Q3 FY26	Medium

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Flow Control Delivered a solid quarter despite an extremely challenging European economic environment, benefiting from strong aftermarket demand and stronger-than-expected capital project bookings in North America. Expects demand to remain consistent as the year progresses. Bookings: up 11% compared to prior yearAftermarket revenue: $76 millionAftermarket revenue as % of total: 76%	$100 million	5%	—	27.7% Adjusted EBITDA margin
Industrial Processing Delivered excellent quarterly results, with strong contributions from both aftermarket parts and capital equipment shipments, led by recent acquisitions. Operational leverage from acquisitions contributed to improved margin performance. Expects aftermarket demand to remain stable and capital business softness to be timing-driven. New orders: $136 millionNew orders growth: up 29% compared to prior yearOrganic growth: 13%	$144 million	—	—	26.1% Adjusted EBITDA margin ($38 million Adjusted EBITDA)
Material Handling Good performance with robust demand for high-performance biller product line. Aftermarket parts and service performed well. Capital equipment demand expected to recover in 2027, with several larger capital projects under discussion. Markets are stable. Bookings: $73 millionAdjusted EBITDA growth: 7%	—	—	—	$15 million Adjusted EBITDA

Orderbook & backlog

Equipment Backlog $182 million Q2 FY26

large capital orders coming in now would likely be revenue for '27

Deals & partnerships

Kadant Profeel Longtime supplier to several Kadant businesses, with approximately 50% of its revenue now intercompany.

The associated profit generated on intercompany activity is recognized in Kadant results, but timing depends on when underlying product is sold to third-party customer.

Clyde Larger transaction.

Contributed to strong performance in Industrial Processing segment.

Unnamed fiber processing company Smaller acquisition, a technology buy to fit into Kadant's upcycling system, supplying a product into fiber processing systems.

Orders are soft in this area currently, but good opportunities are seen for H2 FY26 and early FY27.

Risks & headwinds

Continued softness in global capital equipment markets Ongoing, expected to strengthen in H2 FY26 and into 2027.

Prolonged period of softness, impacting project timing.

Mitigation:Diversified business model, strong aftermarket business, operational execution, growing backlog.

Geopolitical uncertainties and trade policy uncertainty Ongoing.

Leads to customer caution, delayed project releases, and extended approval cycles.

Mitigation:Business model resilience, strong execution.

Negative impact from amortization of acquired profit and inventory and deferred profit associated with Kadant Profeel acquisition Expected to take the remainder of FY26 to work through remaining acquisition date inventory.

Impacted gross margin.

Mitigation:Inventory consumption over time.

Lower gross margin percentage due to higher capital mix and product mix Q2 FY26.

Gross margin down 210 basis points to 43.8% in Q2 FY26.

Mitigation:Focus on operational leverage and cost discipline.

What to watch in Q3 FY26

Capital spending trends

H2 FY26

Current Soft, delayed projects

Target Strengthening demand, projects gaining momentum

Why it matters

Indicates recovery in a key revenue driver for the company.

Looking ahead to the second half of 2026, we believe demand will strengthen relative to the first half of the year and the softness in global capital spending will begin to strengthen.

Find out whether KAI delivers this. Inve re-checks your case every morning.

Q&A highlights

Can you provide more color on the pockets of strength driving the 'several large projects getting close to the finish line' comment, and how this compares to last year?

Jeff Powell highlighted strength in packaging, aerospace, and OSB sectors, noting that large projects are spread across most businesses. He emphasized that the capital equipment investment recession 'can't last forever' and projects are now moving forward as customers can no longer delay investments, indicating a stronger environment and pipeline than last year.

“It's clear that some of these things are starting to move forward, where I think the customer could no longer put off the investments in them.”

asked by Ross Sparenblek · answered by Jeffrey Powell

2 min read 5 chapters

Detailed narrative

Strong Q2 Performance Amidst Headwinds

Kadant reported record Q2 FY26 revenue of $313 million, up 23% year-over-year, with organic revenue growth of 8%. Adjusted EBITDA reached a record $68 million, a 30% increase, and adjusted EPS was a record $3.42, up 26%. This performance was achieved despite continued softness in global capital equipment markets and geopolitical uncertainties, which led to delayed customer approval cycles and project releases.

Aftermarket Business Resilience

The aftermarket business demonstrated strong performance across all operating segments, contributing to healthy quote activity and commercial engagement. Aftermarket parts revenue was a record $214.2 million, though its mix decreased to 68% of total revenue from 71% in Q2 FY25, impacting gross margin. This resilience highlights the stability provided by Kadant's large installed base and recurring revenue streams.

Capital Project Outlook and Pipeline

While capital project activity has been soft, management noted that multiple large projects are in advanced stages, with expectations for improving capital spending trends in H2 FY26 and into FY27. Organic capital revenue increased 23% in Q2 FY26, indicating some pickup. The company believes demand is deferred rather than lost, with a growing capital project pipeline.

Acquisition Performance and Integration

Recent acquisitions contributed significantly to growth, particularly in the Industrial Processing segment, where new orders were up 29% to $136 million. The larger Clyde acquisition is performing well, while the Profeel acquisition is off to a good start despite a temporary profit deferral issue due to inventory consumption. A smaller fiber processing acquisition faces short-term challenges due to lower demand in that specific area.

Operational Efficiency and Cost Discipline

Kadant maintained strong operational execution and cost discipline, with SG&A expenses decreasing to 26.1% of revenue from 29% in the prior year. This efficiency, combined with operational leverage from acquisitions, contributed to improved margin performance and overall profitability, despite a lower gross margin percentage due to product mix.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.